Spring 2010
Disability Insurance Brings Added Dimension to Benefits Consulting
By Carol Harnett, Chair, Health and Performance Innovation Institute
Disability insurance is more than an income replacement vehicle for your clients and their employees. It is also a treasure trove of information about what drives employee health and a way to build richer relationships with your clients.
I became aware of the power of disability data in 2000. An employer wanted to know what they could learn from their disability claim experience other than the actual to expected claims ratio, the number of people out of work and the return to work summary. The findings fascinated me at the time.
The client was a chemical manufacturer so we immediately looked at respiratory claims. The union employees who worked on the factory floors experienced half as many airway and lung issues as expected. The chemists and management team were another story. They filed three times as many claims as anticipated for respiratory distress. The results didn’t make sense.
The client had three reactions. The first was pride in the efforts they made to ventilate the factory floors. Not only had their actions earned them an OSHA VPP merit award, they now believed that their employees’ health possibly improved as a result of their actions.
The second reaction was concern that they did not undertake the same initiative in the separate factory areas where they housed their managers and chemists. We immediately provided the employer with a location listing where these employees experienced the highest respiratory claim incidence. They ventilated their ten worst offending locations and, one year later, the chemists’ and managers’ lung and airway claim incidence matched the union employees’ claim rate.
The third reaction was an inquiry as to why they learned about this trend from their disability claim analysis and not from their medical trends. The answer to that question turned out to be easy. The employer had over 50 factory locations, offered multiple medical plan options ranging from a fully paid HMO to a richly subsidized indemnity plan and partnered with 17 health insurers. The trends were scattered across the country, the medical plans and the various insurance companies.
We see scenarios like this one far less often ten years later. The opportunity to have one place to turn, however, to understand which employees go out of work and for what conditions still resides in incidental absences, family medical leave claims and disability claim experience.
Using absence data to track costs – and advise clients
Around the same time I was discovering the hidden jewels contained within absence data, the Integrated Benefits Institute (IBI) was doing the same. IBI published a case study in 2001 entitled Linking Medical Care to Productivity. One of the study headlines reflected on the newly found importance of employees using short-term disability (STD) benefits:
"Though medical costs are the largest single benefits cost, employees filing STD claims account for 53 percent of the $292 million spent for medical care and STD. Managing these claims effectively requires managing both medical care and disability as part of the same process."
IBI became intrigued with the connections among short-term disability, medical conditions and the number of medical episodes. In their April 2006 issue of Research Insights, Tom Parry revealed that the average disability claim was associated with 3.4 different medical episodes. Further analysis gave insight into disability and its relationship with treatment, health management and medical costs:
"Few of the cases comport with the single medical condition-single disability model that many take for granted. In fact, only 20 percent of the cases studied include a single medical episode linked to a disability case, while 25 percent include five or more medical conditions and nearly 60 percent three or more," the editorial states. "This fact is significant, both for approaches to traditional disability management and also for new emerging approaches to disease management. Interestingly, when we limit analysis to the 20 percent of the disability cases with a single medical episode, the disability share of total (medical) costs jumps to 40 percent."
Approximately a decade later, benefits consultants are becoming as involved in advisory services around group disability benefits as they are in employee health management and health care benefits.
Successfully cross-selling disability insurance: Joseph Schifano’s story
Joseph Schifano is a Louisville, KY-based benefits consultant and a vice president with BB&T Insurance Services, Inc. Several years ago, Mr. Schifano established a goal to cross-sell ancillary products to approximately 80 to 90 percent of his health care clients. "Most employers care about their employees," he says. "Providing them with group life insurance is a no-brainer. Employer-paid long-term disability (LTD) benefits, coupled with voluntary (employee-paid) short term disability (STD) benefits, afford a valuable benefits dollar to spend ratio and lessens the potential financial impact of disability on someone’s life."
Mr. Schifano cites the importance of a complete benefits package in retaining employees. The economic downturn forced one of his clients to lay off 70 of their 100 employees this year. "They are an engineering firm and engineers are costly to onboard. The benefits manager wanted to maintain as robust a benefits package as possible. When things get better, the manager wants to make certain the remaining 30 employees stay."
Mr. Schifano is using IRS ruling 2004-55 in order to help some employers provide the same level of income protection for potentially less premium. The ruling states, if the employer amends the plan document, "long-term disability benefits received by an employee who has irrevocably elected, prior to the beginning of the plan year, to have the coverage paid by the Employer on an after-tax basis for the plan year in which the employee becomes disabled are attributable solely to after-tax employee contributions and are excludable from the employee’s gross income…"
According to Mr. Schifano, rather than eliminate their LTD benefits during a budget reduction process, employers can downgrade their replacement ratio using this ruling and employees who elect the after-tax benefit can still have approximately the same income replacement ratio.
Mr. Schifano believes that adding ancillary line products to his consulting portfolio helped him build stronger and deeper relationships with his clients. "It wasn’t hard to get started. My advice is to build relationships with key ancillary line carriers. They will help you work through all the product nuances."
Carol Harnett is a highly respected consultant, speaker, writer and trendspotter in the fields of employee benefits, health and productivity management, health and performance innovation, and value-based health. Follow her on Twitter via @carolharnett.